(MENAFN- Trend News Agency)
In a stunning turnaround, India and the European Union recently
revived negotiations for a free trade agreement after talks halted
nearly a decade ago — and observers say it could have been driven
by“unprecedented urgency,” Trend reports citing CNBC .
Current geopolitical concerns appear to have forced both sides
to iron out their differences and pursue a trade deal, though the
decision to resume talks was made a year ago.
“I don't think these negotiations are going to be easy, even
now. But necessity can be the mother of invention. There is indeed
an unprecedented urgency to deepening India-EU ties,” said Amrita
Narlikar, professor and president of the German Institute for
Global and Area Studies (GIGA).
“The seriousness of new geoeconomic threats, which have most
recently involved the weaponization of energy and food supplies for
strategic purposes, reveal that we need more reliable value
chains,” Narlikar, who is also an honorary fellow of Darwin College
at the University of Cambridge, told CNBC.
“Sharing political values of democracy and pluralism, India and
the EU can and should invest in the FTA, not only for trade gains
but also for security gains,” she added.
The deal is expected to double trade between India and the EU in
the next five years, from an estimated $115 billion in 2021,
according to the Economic Intelligence Unit.
India's Commerce and Industry Minister Piyush Goyal and European
Commission Executive Vice President Valdis Dombrovskis formally
relaunched the negotiations in Brussels in June.
“Both partners are now resuming the FTA talks after a gap of
about nine years since the earlier negotiations were left off in
2013 due to difference in the scope and expectations from the
deal,” India's Ministry of Commerce and Industry said.
The next round of negotiations is scheduled to take place in
Brussels in September. The first round of talks took place between
June 27 and July 1 in New Delhi.
India 'sense of urgency'
High level meetings appear to have accelerated the discussions
and helped lead to a clearer roadmap for the trade
negotiations.
In May, Indian Prime Minister Narendra Modi visited Germany,
Denmark and France, while European Commission president Ursula von
der Leyen made a trip to New Delhi in April.
Still, India is known to be wary of trade pacts and has walked
away from previous deals before.
It's mainly due to concerns that such deals could prove
detrimental to domestic producers, since they will have to compete
against relatively cheaper goods coming in from other markets.
In 2019, Modi took a decisive step and withdrew India from the
Regional Comprehensive Economic Partnership. It was the world's
largest free trade pact, which brought the 10-member Association of
Southeast Asian Nations, together with China, Japan, South Korea,
Australia and New Zealand.
But recent trends and current developments seem to indicate that
the“Modi government is gearing up to be a part of the regional and
multilateral architecture,” according to Rahul Mishra, senior
lecturer at the Asia-Europe Institute of University of Malaya in
Kuala Lumpur.
“India's decision to join the U.S.-led Indo Pacific Economic
Framework in May 2022 and trade talks with the UK, in addition to
the already signed trade pacts with Australia and UAE indicate the
sense of urgency with which the Modi government is approaching
trade pacts,” he said.
“That said, it must be kept in mind that both India and the EU
are tough negotiators.”
Mutual trade benefits
The deal, if concluded, would be one of the most significant
trade agreements for India as the European Union is its second
largest trading partner after the U.S., according to India's
commerce ministry.
It could lead to multiple benefits for both sides such as
greater market access for businesses, help lower tariffs, and ease
the movements of goods and people for employment purposes.
The EU, which is India's 10th largest trading partner, accounts
for 2.1% of total trade in goods. Bilateral trade for services
between them reached €30.4 billion ($30.68 billion) in 2020, data
from the European Commission showed.
Merchandise trade between India and the EU hit an all-time high
of $116.36 billion in the financial year that ended in March — up
43.5% year-on-year, according to the India's Ministry of Commerce
and Industry. India's exports to the EU jumped 57% to $65 billion
for the full year period, the ministry said.
While an agreement with the EU is more complex than one with an
individual country, the trade deal will help companies in the
27-member bloc to access the large Indian market and diversify
their supply chains, said Arpita Mukherjee, professor at the Indian
Council for Research on International Economic Relations.
Indian firms may not necessarily lose out but compromise is
needed, she said.
“India can use an EU-type agreement to initiate domestic
reforms, improve standards and processes, which will lead to
overall global competitiveness of our firms,” she added.“In any
trade agreement, there will be some gainers and losers. If a
country enters into a trade negotiation with a market like the EU,
there is need for the domestic sector to prepare for deeper
liberalization.”
“As I understand, the [Modi] government has a strong will and
intention to negotiate and close the trade agreement. However, to
close a deal expectations have to be met on both sides. And both
sides need to make some compromises,” Mukherjee said.
Deadline 'too ambitious'
For now, both India and the EU have expressed optimism over the
talks and aim to close the deal by the end of 2023.
But achieving that target won't be easy, some analysts said.
There are several sensitive issues that could potentially derail
the talks.
“Next year seems too ambitious a deadline considering that both
the parties are rigid in terms of their trade negotiation
approaches,” said Mishra, from the University of Malaya.
“I believe it would take them at least two years more to
finalize the deal. EU's non-tariff barriers, labor and
phytosanitary norms are going to be a challenge, while India's
sensitivities with regard to its agriculture sector might create
hurdles,” for the deal to move forward quickly, he added.
The timeline“is a tall order” since there are many sticking
points — ranging from tariffs over cars and wine, to visa rules for
the movement of people to provide services, said Narlikar from
GIGA.
“Both parties will be well served to approach these negotiations
as being not 'only' about trade, but in terms of a key opportunity
with wider geoeconomic implications,” she added.
“For European trade technocrats, this is not always an easy task
— commitment at the highest political level and cross agency
consultations will be key.”
Recognizing the broader context will“encourage both sides to
make the necessary compromises on trade questions in the interest
of questions of national security,” she added.
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